After a period showing its subscriber base had reached saturation point amidst concerns over growth and increasing competition, the past year has seen a reversal in fortune for Netflix (NASDAQ:NFLX). And recently, the company’s Q4 earnings showed its biggest customer adds since the pandemic and a return to double-digit top-line growth.
The good news, according to Oppenheimer’s Jason Helfstein, a 5-star analyst ranked in the top 2% of Street experts, is that looking ahead, there is more growth on the menu for the streaming giant.
That should come partly in the form of better ARM (average revenue per member). Considering the Basic & Premium price increases in US/UK/France announced last October, the analyst sees ARM growing by 4% in 2024. But it could be more than that. “ARM could still benefit from improvements to ad monetization, subscribers paying for additional members or price increases in other regions,” Helfstein explained.
Helfstein also thinks the Street is underestimating the potential of new net adds, believing that over the next 3 years, net adds could outpace the Street’s forecast by 31%. In Q1, consensus expects paid sharing/ad-tier growth to cool, factoring in a 9 million sequential drop in net adds. “However,” says Helfstein, “NFLX has only captured ~20% of 100M discussed opportunity for Paid Sharing. By 2026, we think a 60% capture rate is more likely, given NFLX’s content advantage (and pull-back by legacy media) and would represent 17M sub upside vs. Street.”
Moreover, the competition is not as fierce as it once was because other streaming platforms are “prioritizing profitability,” and therefore, Helfstein expects competition to ease. Moreover, given Netflix “monetizes better” than studios’ owned services, studios are licensing more content to Netflix.
Lastly, even after the past year’s gains (the stock is up by 106%), Helfstein notes that its valuation is not at the level of its tech peers.
Accordingly, given the prospects outlined above, Helfstein thinks a price target hike is due. His objective moves from $615 to a Street-high of $725, suggesting the shares will appreciate by ~19% from current levels. Helfstein’s rating stays an Outperform (i.e., Buy). (To watch Helfstein’s track record, click here)
Looking at the ratings breakdown, based on a mix of 27 Buys, 13 Holds and 1 Sell, NFLX receives a Moderate Buy consensus rating. That said, the $585.95 average price target suggests the shares will stay rangebound for the time being. (See Netflix stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
